The present invention relates generally to an electronic trading system and more specifically to facilitating the trading of instruments, investments, securities and assets between buyers and sellers in a trading environment.
There are currently many different trading systems providing different approaches for trading different types of instruments, investments, securities and assets. A common trading system is an open outcry system where traders representing buyers and sellers openly cry out buy and seller orders. This trading system, while having a long historic legacy, is limited by the physical requirement of the parties needing to be within the same location, commonly known as a trading floor. This trading technique is also time consuming because after open outcry orders are fulfilled, there is a long process before settling the accounts between buyer and seller.
Another trading approach is an exchange referred to as a market maker. The exchange provides a platform for traders to exchange various Instruments, investments, securities and assets. Historically, exchanges included traders meeting a central location, similar to an open outcry exchange. These exchanges typically require any investor to trade instruments through a broker or other person authorized to perform activities within the confines of the trading platform.
With the advent of computing systems, the landscape of trading has shifted. While many systems still utilize traders, there is a growth in exchange options using electronic means. For example, through a network connection, such as across the Internet, a user may physically log in to an exchange service and manually submit buy and sell orders with the exchange. From the user's personal account, various instruments, typically stocks or bonds, can be bought or sold with the simple click of a button. In these systems though, the exchange itself underwrites the transaction so the user may purchase instruments from the exchange and similarly sells instruments to the exchange.
In the current electronic systems, there are numerous entities and systems that must operate together to complete these trade transactions. With these different entities and systems, there is also a significant time delay before any single transaction is completed. For example, even though a person may complete a trade on day 1, the item purchased may not be delivered for any number of days thereafter.
Using the example of an electronic trading system, if a user wants to purchase an exchange instrument, the user would submit a buy order. This buy order is submitted through a computing interface, such as across a network connection. The service that the user subscribes to acts as an agent to present the buy order to a particular market. Similarly for sell orders, within the market, a sale is made through matching buy and sell orders, and with a match the first portion of this transaction is complete.
For these existing trading systems, this represents a small portion of the time and effort until the full transaction is complete. On the back end of this process is a complicated and extensive process including a number steps that may involve additional parties. The finality of the buy and sell transaction must be settled. This settlement includes different entities and/or transactions to settle the trade.
One step is verifying that the seller owns that being sold. Another step is the delivery of funds from the buyer to the seller. This may be processed by one or more banking institutions and may include active linking to outside bank accounts or the use of internal accounts. Upon receipt of the money, ownership of the item purchased must then be delivered to the buyer. In the case of physical items, e.g. stock certificates, they must be physically delivered, where physical papers evidence ownership of an asset or investment. Otherwise, the ownership rights may be electronically adjusted in another monitoring system. Regardless of the delivery technique, there is a delay because different systems must interact to provide verification of the original ownership, settlement of payment and then delivery.
Problems can arise in these transactions for any number of reasons. Problems can occur when a buyer does not have the funds to pay for the purchase. Problems can occur when a seller fails to have ownership of the item being sold. With all the different unrelated entities involved, there is also a significant delay between when a buyer buys an item and has ownership rights to thereupon sell the item.
It is a goal to have a trading system with straight through processing (STP). STP would provide for a seamless and veritable instantaneous completion of a transaction. In the existing systems, STP is not attainable. Moreover, there are numerous resulting and burdensome interactions and Interactions amongst and between the entities that have steps to perform to facilitate a transaction, and there are resulting burdensome costs because each party also takes a percentage of each transaction as a fee. So current trading systems, even the ones using electronic trading techniques, are not only unable to perform STP, they inherently include a greater of amount of cost overhead than a system having a single entity performing all of the backed operations.